Exploring The Moral, Social, And Legal Limits Of Trade

Recently our company had a court case involving a restraint of trade and we won, in as much as there is ever a winner in cases such as these. If we had not protected ourselves at the outset we might have ended in a situation in which unethical behavior by an ex-employee might have affected our company adversely.

It is every fresh produce company’s nightmare: a senior commercial employee with years of service informs you he/she is leaving to join a competitor. After the initial shock and questions regarding the decision, the negotiations to wind down the employer/employee relationship commence. Invariably, the main issues revolve around a restraint of trade that was signed at the beginning of the relationship. As with a marriage that ends in a divorce, so it is with the separation between an employer and his employee: you get what you put in writing. But even a written agreement is subject to many rules and interpretations.

In English law, the principle applies that an individual should be free to follow his trade and use his skills without undue interference, rendering void a contractual term purporting to restrict an individual’s freedom to work for others or carry out his trade or business, unless it is:

Designed to protect legitimate business interests; and

No wider than reasonably necessary.

The absence of a non-competition clause does not give an ex-employee free reign. It remains forbidden to attempt to convince colleagues, clients and suppliers to move with the ex-employee to the new employer. However, without a signed and therefore legally binding restraint of trade document, it is a lot more difficult to enforce any transgressions.

It must be noted that a non-competition clause is a legal means to protect an organization against any malicious intent by employees who are no longer employed by the organization. An employee who simply goes to work for a competitor is not by definition breaking the law.

This malicious intent can manifest itself in actions such as sharing confidential information with the new employer or illegal use of company assets (mostly information relating to the client and/or supply base) to his/her own advantage. The inclusion of a restraint-of-trade clause that contains specific references to clients and suppliers in your contracts of employment is always advisable. The simple reason is that an ex-staff member who has malicious intent can cost you a lot of money.

In The Netherlands – the main European import hub for fresh produce – the issue of restraint of trade is often at the center of court cases, and often results in friends turning into enemies. The frequency and arrogance with which senior employees transgress the conditions that were agreed upon is mind-boggling. (To clarify, ‘transgress’: to go beyond the limits of what is morally, socially or legally acceptable.) Some of these transgressions are so flagrant – and in my mind even criminal – that much higher sentences and/or penalties are justified.

Not every non-competition clause is allowed. The Dutch constitution says citizens have the right to choose labor freely. A restraint of trade clause breaches this right. The courts consider how a non-competition clause can co-exist with the above-mentioned fundamental right to work.

Most importantly, a restraint of trade is only valid and effective if:

It is agreed upon in writing;

Preferably it does not form part of the employment contract, but is drafted and signed as a separate contract in its own right;

The employee is above the age of 18 years;

It does not involve a fixed-term or temporary employment contract;

It defines: the type of work; the type of employer; the geographical limitations; the time frame; the penalty for any transgression.

So, it stands to reason that an employer cannot restrict an employee to ‘ever again work in the fresh produce sector’ or ‘work nowhere in The Netherlands.’ An added complication is that the rise of ‘digital work’ makes it really difficult to define the geographical limitations. An example of a simple restraint clause could be as follows:

It is forbidden for the employee to – without the prior consent of the employer – be employed as a sales person by a company that trades pineapples from Costa Rica and that is situated within a radius of 20 kilometers measured from Amsterdam Central Station, for a period of one year after leaving the employment of the employer.

To make it even more enforceable, the restraint of trade document may include a list of clients and/or suppliers with which the employee is not allowed to conduct business within a period of (e.g.) one year.

After examining court cases in The Netherlands, it appears as if a restraint of trade that restricts an employee for 12 months after termination is only likely to be enforceable in respect of senior members who have access to significant confidential information and whose competitive activity post-termination could significantly damage the employer.

There is one aspect that is a gross transgression of ethical and moral limits. Whenever an employee goes to work for a direct competitor, the ex-employer is concerned with safeguarding the ongoing business with its suppliers/clients and wants to protect its intellectual property. Information relating to clients and suppliers, as well as finances – including sales statistics – is crucial in managing a modern-day business.

What happens when the employer discovers that his soon to be ex-employee has been transferring company-sensitive information to the new employer, prior to leaving his/her current position? Does it serve any purpose to approach the Court? Yes it does! Sharing information is an illegal act and can (and should) be brought before the Court.

In our recent case, the court upheld our contention that channeling company-specific information (such as grower and client information) while in the employ of Company A to Company B (the new employer) is indeed a transgression of the law. Whilst this verdict does not fix the damage that has been done, at least it shows that justice still prevails.

Maybe being ‘hung, drawn and quartered’ is not fitting in this day and age, but we contend that actions such as these amount to ‘stealing from the hand that feeds you.’ That justifies more than a slap on the wrist.

Nic Jooste is the director of Marketing and CSI at Cool Fresh International, a Rotterdam-based global marketing organization for fresh produce.